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Bankruptcy in Brief

             a service of the Moran Law Group

What can you do about tax liens in bankruptcy?

Start by determining if the lien attaches to value: 

Liens attach to assets in the order in which they are perfected: 

 first in time, first in right. 

That means if a tax lien is filed, it attaches to your assets after (junior to) all other liens which have attached to the property before the tax lien.

For example, if your house is worth $200,000 and the mortgage is $180,000, a properly filed tax lien attaches to the $20,000 of equity available in the property. Tax liens donít jump to the head of the line!

Tax liens are secured only to the extent that there is value available to secure the lien. In the example above, a tax lien for $50,000 is only secured for $20,000. The $30,000 balance is unsecured.

The general rule is that liens pass through a bankruptcy intact, unless some action is taken in the bankruptcy proceeding to avoid the lien.

Is the tax referenced in the lien dischargeable in bankruptcy?

If the tax is not a priority tax, or non dischargeable because no returns were filed, the unsecured portion of the lien is discharged in bankruptcy. The secured portion of the lien survives the bankruptcy as a charge on the property if you file Chapter 7; it may be good practice to get a binding order on how much of the lien was secured at filing.

Secured tax liens are generally paid in full through a Chapter 13 plan.

If the tax is not dischargeable, the lien survives the Chapter 7 discharge as a charge on the pre petition property and it attaches to property acquired after the bankruptcy.

In Chapter 13, the lien does not attach to property acquired after the bankruptcy is filed and the Chapter 13 plan should provide for payment in full of the priority tax, such that the lien should be released upon completion of the plan.

Tax relief in bankruptcy

Tax liens and retirement savings

Frequently asked bankruptcy tax questions

Choosing a bankruptcy chapter

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